The Fair Work Commission (FWC) has a vital role to play in the management of the current COVID-19 pandemic as it continues to impact employment relationships across the country.
One aspect of the FWC’s role is the determination of applications by employers to reduce the amount of redundancy pay payable to employees.
In making such determinations, the FWC is tasked with exercising its discretion based on the facts and circumstances of the employer. Where an employer claims that it cannot afford to pay redundancy pay, it must able to demonstrate that fact to the satisfaction of the FWC.
In two recent applications for redundancy pay variation, two separate employers claimed that they were experiencing financial hardship as a result of COVID-19 and could therefore not afford to pay their redundant employees the full amount of redundancy pay they were entitled to receive.
Interestingly, the outcomes for the employers were different, with one application being granted and one being rejected.
In Mason Architectural Joinery Pty Ltd  FWC 1897, the employer argued that it was experiencing significant financial hardship as a result of COVID-19 and had already taken many steps to reduce its overheads, such as selling a company car and reducing spending. The employer also advised the FWC that it was required to make two employees redundant and its application to vary redundancy pay related to one of those employees.
In determining the matter, FWC took into account the evidence of the employer, including that it had lost work and had gone some months between being paid for jobs. The FWC also considered the employee’s circumstances. Specifically, that he had received payment for notice, accrued annual leave and accrued rostered days off on termination of his employment. He had also secured new work at a higher rate of pay.
The FWC was satisfied the employer was experiencing significant financial stress and could not afford to pay the employee’s full redundancy pay. The employee’s redundancy payment was reduced from seven to one week’s pay.
In Worthington Industries Pty Ltd v Ablahad, Treloar and Subair  FWC 1912, the employer applied to the FWC to vary the redundancy pay of three employees from four weeks’ pay to one week’s pay.
The employer claimed that all areas of its business (aside from its work in the rail industry) had been impacted by the COVID-19 pandemic and that there was an increase in competition. The employer argued that, as a result, it could not afford to pay the employees their full redundancy pay entitlement.
In dealing with the application, the FWC asked the employer to provide further material in support of its application, including a breakdown outlining how much of its alleged financial difficulty was due to the COVID-19 pandemic and how much was due to competition.
The employer responded with estimates of its projected downturn in sales and noted that it was unlikely that its landlord would be responsive to requests for a reduction in rent.
In a telephone conference with the FWC, a representative of the employer said that while the employer had money in the bank to pay the redundant employees their redundancy pay at the time, the employer would very soon be dealing with a deficit and she did not know how serious the employer’s cash flow problems could become.
The FWC brought to the employer’s attention the Federal Government’s JobKeeper Scheme and suggested the employer ascertain its and its employees’ eligibility to participate in the scheme. The FWC proposed staying the matter to enable the employer to investigate the scheme further.
However, the employer pressed for a decision on its application in the interests of providing certainty for those involved.
In reaching its decision, the FWC acknowledged the difficult circumstances of all of the parties but found the employer was in a position to pay the employees their redundancy pay and should do so. It rejected the employer’s applications.
Lessons for employers
Employers seeking to make such applications based on financial hardship resulting from COVID-19 should ensure that they are able to clearly demonstrate that their current position of financial hardship would make it impossible for them to pay the full redundancy pay entitlement.
Further, these decisions demonstrate that:
- the exercise of the FWC’s discretion can vary from case to case; and
- projected financial hardship is unlikely to satisfy the FWC that an employer cannot pay redundancy pay at the time it is due.
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